Fox Fearmongers That Detroit Bankruptcy Is A ‘Wake Up Or Else’ Call

Guest anchor Jenna Lee and guest opened yesterday’s Your World by scaring people into believing the Detroit Chapter 9 bankruptcy (since ruled unconstitutional) will have a domino effect on the rest of the country. “$18 billion in debt is driving the Motor City into bankruptcy. Is Washington watching? Because the country is tackling the very same issues as the nation’s debt races toward $17 trillion.” She asked Dan Mitchell of the CATO Institute “Wake up or else, Dan?”

Mitchell jumped on the bandwagon – and then used it to demonize the poor and to suggest they are threatening the very foundation of our country:

We better wake up, because whether you’re talking about what happened in Detroit, whether you’re talking about the cities in California that have declared bankruptcy, whether you’re looking at the European welfare states, all these things have the same basic underlying causes. When you have a very bad ratio of people who produce compared to all the people who have their snouts in the public trough, then you wind up with a financial disaster. Now with the federal government, it’s more entitlements, with state and local governments, it’s more a very bloated government workforces and very generous unfunded pensions. …If we don’t do anything to control entitlements here in Washington, it’s the most predictable crisis for America.

Lee made the fear mongering a bit more explicit: “Does Detroit actually pose that same sort of threat to the United States of America? If the city goes bankrupt, does it have that same effect?”

Mitchell said he doesn’t believe in “that contagion argument.” But, he went on to argue for privatization. “You can’t have these unfunded schemes. …The way you fix it is simple. If you’re Detroit or you’re the state of Michigan… you switch to a system of defined contribution retirement, which means personal savings accounts. And if you’re a country, you have to reform your entitlements.”

As Media Matters noted, this “Detroit domino effect” fear mongering persisted throughout Fox News. But in an interview with economist Jared Bernstein, it was also debunked.

Bernstein noted that Detroit’s bankruptcy filing is unique, claiming “it’s wrong to extrapolate” from the city’s situation. Indeed, much of the reporting on the matter explains the series of unfortunate circumstances—from declining tax revenue to high crime and bad governance—that led the city into generations of decline.

Bernstein also stressed that other municipalities throughout the U.S. have in fact improved the standing of their liabilities. He explained that Fox’s suggestion that other cities will follow Detroit’s lead “assumes that municipalities have just sat there and not done anything about their pension liabilities. In fact, the majority of them have taken actions to bring their costs in line with their liabilities. The recovering economy is also helping them as the returns on their pension funds go back into normal territory.”

Other economists agree that the financial outlook of most cities and municipalities around the country is entirely manageable.